Modelling the Hungarian Agriculture: a methodological overview of the FARM-T model

This paper provides an opportunity for the reader to get an insight into the current modelling work atthe Research Institute for Agricultural Economics, Hungary (AKI). After giving a short summary ofthe applied econometric models in the past decade, our latest development, the farm group modelFARM-T will be introduced.Before introducing FARM-T in details, we devote the second part of the paper to collect all the majorchallenges we faced during the model development process, when we tried to establish a modelstructure, with which the possible effects of the introduction of the Single Payment Scheme (SPS) inHungary can be properly estimated. Therefore, this chapter is meant to explain our motivation forchoosing the applied model concept.In the following part of the paper, we provide a detailed introduction into the model. First, wedescribe the general structure, and then we go into the details about supply and demand sides. We layan emphasis on the supply side, and especially how the agricultural production is represented by farmgroups. After describing supply and demand sides, we focus on how the equilibrium is reached. Here,we discuss the interrelationships between sectors in more details (e.g. connection between crop andlivestock production). We also stress the importance of regionally differentiated export and importmarkets. This enables us to take the various transportation modes, distances and market positions ondifferent external markets into account.Finally, we discuss special model building issues related to the 2003 CAP reform, especially how theeffects of decoupling of direct payments from production are estimated. We close this paper with ashort summary of the problems concerned.